FIRE INSURANCE

A PRESENTATION BY
A L MEENA, SBM
NATIONAL INSURANCE COMPANY LTD.
PRACTICE OF FIRE INSURANCE
• FIRE INSURANCE IS TRADITIONALY
TRANSACTED THROUGH INSURANCE
POLICY COVERING A VARIETY OF
PERILS IN ADDITION TO ‘FIRE’
• PRICING TARIFFED TILL 31.12.06,
POLICY WORDINGS ETC. STILL AS
PER ERSTWHILE TARIFF
 MEANING OF FIRE IN
INSURANCE PARLANCE

• ACTUAL IGNITION
• ACCIDENTAL IN ORIGIN SO FAR AS
THE INSURED IS CONCERNED
• ACCOMPANIED WITH FLAME
• FOLLOWED BY EVOLUTION OF HEAT
AND/OR SMOKE
MEANING OF FIRE IN
INSURANCE PARLANCE CONTD….
 Fire Damage additionally includes losses
arising out of the following natural
consequences of fire :
Loss or Damage caused
by water or other fire extinguishing agents
used in extinguishing the fire
by legitimate act of a Fire Brigade
by collapse of the building or any part
thereof as a consequence of fire
to the Insured property during removal
from the building on fire for safety
 GENERAL REGULATIONS
• Applicable for land based properties unless
expressly prescribed
• Block wise separate SI for Building, P&M and
accessories, Stocks, FFF and other contents
• STFI & RSMD perils can be opted out at inception
only
• Valued Policies can not be issued except for
properties for which Market value cannot be
ascertained
 GENERAL REGULATIONS…...
• Policies for period more than 12 months
prohibited except for Dwellings
• Midterm cover for STFI and RSMD if
deleted at inception, on certain conditions:
 Specific request to cover entire property in
one location- no selection
 Premium on short period in cash or DD
 Cover to commence after 15 days
 GENERAL REGULATIONS…...
• Minimum premium Rs.100/- except for Section III
and Tiny Sector Industries for which it is Rs.50/-
• Partial Insurance: not permitted. Plinth and
Foundation of a Building can be excluded.
• Short Period Rates: Higher than proportionate
• Mid term revision in Sum Insured:
Increase: Pro-rata
Decrease: Short period
 GENERAL REGULATIONS…...
• Cancellation of Policy:
At Insured’s option: Short period basis
Replacement of policy by same insurer by
a new annual one for same or higher SI :
Pro-rata basis
Pro-rata refund if cancelled due to Govt.
order/ demolition/ completion of
construction
At Insurer’s Option : Pro-rata basis
 GENERAL REGULATIONS…...
• RATING OF RISKS IN MULTIPLE
OCCUPANCIES : ‘Per se’, single rate for building
if entire building is covered under one sum
insured
• Silent Risk:
Factories where no manufacturing/ storage
activities are carried out continuously for 30 days
or more.
Premium rate is lower than working rate.
The silent rates are not applicable if a risk goes
silent following a loss under the policy.
COVER UNDER “STANDARD FIRE
AND SPECIAL PERILS POLICY”
• FIRE (Excluding damage caused to the property
insured by its own fermentation, natural heating
or spontaneous combustion, its undergoing any
heating or drying process, its burning by order
of any Public Authority)
• LIGHTNING
• EXPLOSION/IMPLOSION (Excluding damage to
boilers, economizers, other vessels, machinery
or apparatus subject to centrifugal force by own
explosion/ implosion)
COVER UNDER “STANDARD FIRE
AND SPECIAL PERILS POLICY”……
• AIRCRAFT DAMAGE
• RIOT, STRIKE AND MALICIOUS DAMAGE
• STORM, CYCLONE,TYPHOON,TEMPEST,
HURRICANE, TORNADO, FLOOD AND
INUNDATION
• IMPACT DAMAGE
• SUBSIDENCE AND LANDSLIDE
INCLUDING ROCK SLIDE
COVER UNDER “STANDARD FIRE
AND SPECIAL PERILS POLICY”
• BRUSTINGAND/OR OVERFLOWING OF
WATER TANKS, APPARATUS AND PIPES
• MISSILE TESTING OPERATIONS
• LEKAGE FROM AUTOMATIC SPRINKLER
INSTALLATIONS
• BUSH FIRE
GENERAL EXCLUSIONS
THIS POLICY DOES NOT COVER …
• Excess Clause (w.e.f 01.04.11) – Deductible from each and every claim
per event (Not applicable to Dwellings)
• Policies having Sum Inured up to INR 10 cr per location– 5% of claim amount subject to a
minimum of Rs 10,000/-
 
• Policies having Sum Insured above INR 10 cr per location up to INR 100 cr per location
5% of claim amount subject to a minimum of INR 25,000
•  
• Policies having Sum Insured above INR 100 cr and up to INR 1500 cr per location-
5% of claim amount subject to a minimum of INR 5 lakhs

• Policies having Sum Insured above INR 1500 Cr and up to INR 2500 cr per location
5% of claim amount subject to a minimum of INR 25 lakhs
 
• Policies having Sum Insured above INR 2500 Cr per location
5% of claim amount subject to a minimum of INR 50 lakhs

 
Deductibles for Floater & Floater
declaration policies
• 5% of claim amount subject to minimum
of INR 50,000/-
GENERAL EXCLUSIONS
THIS POLICY DOES NOT COVER …
• War Group of Perils
• Nuclear Group Of Perils
• Pollution or Contamination loss except
resulting from insured peril or insured
peril resulting from pollution or
contamination
THIS POLICY DOES NOT COVER …
• Loss, destruction or damage to bullion or unset
precious stones, any curios or works of art for
an amount exceeding Rs.10,000/-, goods held in
trust or on commission, manuscripts, plans,
drawings, securities, obligations or documents of
any kind, stamps, coins or paper money,
cheques, books of accounts or other business
books, computer system records, explosives
unless otherwise expressly stated in the policy.
THIS POLICY DOES NOT COVER …
• Loss, destruction or damage to any electrical
machine, apparatus, fixture, or fitting arising from or
occasioned by over-running, excessive pressure,
short circuiting, arcing, self heating or leakage of
electricity from whatever cause (lightning included)
This exclusion is popularly known as DYNAMO
Clause. It applies only to the particular machine etc.
so affected and not to other machines etc. which
may be destroyed or damaged by fire so set up.
ELECTRICAL FIRE
ELECTRICAL FIRE
THIS POLICY DOES NOT COVER …
• Loss or damage to the stocks in Cold
Storage premises caused by change of
temperature.
• Architect/ Engineer’s fees exceeding 3%
of claim amount
• Debris removal exceeding 1% of the claim
amount
• Consequential or indirect losses
THIS POLICY DOES NOT COVER …
• Spoilage damage due to interruption of
any process or operation
• Earthquake/ Volcanic eruption
• Theft during or after occurrence of a peril
• Removal of property from stated place
except for repairs etc. upto 60 days
• Terrorism damage
GENERAL CONDITIONS
1. Misrepresentation, non-discloser of material
facts by the insured makes the policy voidable
2. Cessation of cover on fall or displacement
(other than by an insured peril) of insured
property on expiry of 7 days
3. Cessation of cover on material alteration, if
unoccupied for more than 30 days or passage
of insurable interest
4. Loss covered under any marine policy is not
payable
5. Cancellation
GENERAL CONDITIONS
6. Duties of the Insured in the event of an
occurrence giving rise to a claim
7. Rights of the Insurer in the event of a claim
8. Fraudulent means by Insured forfeits all
benefits under the policy
9. Insurer’s rights to reinstate or replace the
property in case of a claim
10. Average clause
11. Contribution
GENERAL CONDITIONS
12. Subrogation
13. Arbitration
14. All communications by insured to be
in writing
15. Reinstatement of Sum Insured after
a claim
 ADD-ON COVERS
• As an extension of the Standard Fire and
Special Perils Policy only
• Mid-term inclusion is permissible on
payment of annual premium
• Waiting period of 15 days
• No refund of premium for Mid-term
deletion unless the policy is replaced by
fresh policy
 Add-on Covers ……..
Architects, Surveyors and Consulting
Engineers Fees ( in excess of 3% claim
amount)
• Sum insured is to be specified
• Cover upto 7.5% of adjusted loss
• Fees for superintendence of reinstatement
of property lost in a claim under the policy
• It does not cover fees for preparation of
claim documents or estimates
Add-on Covers…….
Removal of Debris ( In excess of
1% of the claim amount)
• Upto 10% of the Sum Insured
• Removal of debris from the premises
• Dismantling or demolishing ( applicable to
• Shoring up or propping BMC only )
Add-on Covers…….
Omission to Insure additions,
alterations or extensions
• Takes care of omission to insure additions
alterations or extensions during currency of the
policy
• Applicable to buildings, plant & machinery and
furniture/fixtures/fittings only
• Premium charged on 5% of sum insured on BMC
• When noticed, notify and pay premium
• At expiry of policy, submit declaration within 30
days and get refund, if any, of premium paid
initially
OTHER ADD-ON COVERS
• Terrorism Damage
• Earthquake Fire and Shock
• Spontaneous Combustion
• Impact Damage due to Insured’s own
vehicles and articles dropped therefrom
• Spoilage Material Damage Cover
• Leakage and Contamination cover
(applicable to oils and chemicals only)
OTHER ADD-ON COVERS ……
• Deterioration of Stock in cold storage premises. (a) due
to accidental power failure, (b) due to change in temr.
Arising out of loss of cold storage m/c.
• Forest fire
• Temporary removal of stocks
• Loss of rent
• Start up expenses
• Additional expenses of rent for an alternative
accommodation ( applicable to non-manufacturing
premises only)
FIXING OF SUM INSURED
• Building and Plant & Machinery
– Original Value
– Written Down Value ( original cost less
depreciation)
– Market Value
– Reinstatement Value
Insurance on any of the first two values shall
result in ‘under-insurance’ hence it is arranged
either on Market Value or Reinstatement
value
REINSTATEMENT VALUE BASIS
• Sum insured to represent replacement cost of
same type or kind of the property
• Review of sum insured on each renewal –
Revaluation or with the help of RBI index
• Slight modification of principle of ‘Indemnity’ as
insured gets ‘new’ in place of ‘old’- without
application of depreciation
• Reinstatement of property lost is must, otherwise
claim is to be settled on market value basis
• Condition of Average still applicable, therefore
sum insured to be fixed carefully
FIXING OF SUM INSURED
• STOCKS
Raw Materials - Procurement Cost
Finished Goods - Net Manufacturing
Cost
Stock-in-Process - Manufacturing cost
till that stage of Production
N.B. Sum Insured on Decleration Policies is
taken on market value basis.
FIXING OF SUM INSURED
• STOCKS
Raw Materials - Procurement Cost
Finished Goods - Net Manufacturing
Cost
Stock-in-Process - Manufacturing cost
till that stage of Production
N.B. Sum Insured on Decleration Policies is
taken on market value basis.
REINSTATEMENT VALUE CLAUSE
• Applicable to Building, Machinery, F/F/F
only
• Insured to opt for this clause
• Sum insured to represent replacement cost
of same type or kind of the property
• In case of claim, replacement by same type
or kind of the property, improvements not
paid for
• Depreciation is not applicable
REINSTATEMENT VALUE CLAUSE

• Reinstatement of property lost is must, otherwise

claim is to be settled on market value basis
• Condition of Average is applicable
• Reinstatement to commence and carried out with
reasonable dispatch,
• To complete within 12 months or agreed
extended period, provided insurer’s liability is not
increased
• Reinstatement at another site is permitted with
no increase in liability
ESCALATION CLAUSE
• Takes care of escalation and ensures automatic
regular increase in sum insured during currency
of the policy
• A percentage not exceeding 25% is to be opted
at inception
• Premium will be at 50% of full rate
• Applicable to BMA only
• Sum insured to increase each day by an amount
representing 1/365 of the specified percentage
 Daywise Escalated Sum Insured
125000
Sum Insured

100000
1 15 29 43 57 71 85 99 113 127 141 155 169 183 197 211 225 239 253 267 281 295 309 323 337 351 365

Days
 DESIGNATION OF PROPERTY
CLAUSE
• By application of this clause, the insurers
agree to accept the designation under
which the property has been entered in
the insured's books.
• Avoids any other interpretation
• No additional premium
 DECLARATION POLICY
• Takes care of frequent fluctuations in stocks/stock
values during currency
• Ensures adequate cover with no extra cost
• Minimum Sum Insured (S I) Rs. 1 crore with atleast
Rs 25 lacs at one location
• Monthly declarations based on either average of
values on each day or highest value during the month.
Average of declarations = final S I
• Refund not exceeding 50% at expiry
• Not to be issued for Stocks in process, at railway
siding and short period policies
FLOATING POLICY
• Takes care of situation where stocks are
stored at different locations but separate
values for each location is not available
• Different locations must be specified
• Highest applicable rate is to be charged
with 10% loading
• No loading in same compound
• Can be issued on declaration basis also
LOSS ASSESSMENT SEQUENCE

• Building, Plant & Machinery

On Market Value Basis
Gross Assessed loss
Less Depreciation
Less Salvage
Less Under-insurance
Less Excess
LOSS ASSESSMENT SEQUENCE …..

• Building, Plant & Machinery

On Reinstatement Value Basis
Gross Assessed loss
Less Salvage
Less Under-insurance
Less Excess
LOSS ASSESSMENT SEQUENCE …..

• Stocks

Gross Assessed loss

Less Salvage
Less Under-insurance
Less Excess
Consequential Loss (Fire)
Insurance
Consequential Loss (Fire) Insurance
Policy

• Ensures Fire cover for Balance – Sheet of a

commercial organization
• There must be a material damage policy
covering the interest of the insured
• All perils combined in standard Fire material
damage policy are necessarily covered
• Option to cover all or some of the Special Perils
covered under the material damage policy
MATERIAL DAMAGE PROVISO
FIRE POLICY FLOP POLICY

Material Damage Business Interruption

Indemnification under Indemnification under

FIRE Policy FLOP Policy
SCOPE OF COVER

LOSS OF GROSS PROFIT

(Also covers any Loss Minimising Expenses
upto the costs thereby avoided)
Due to reduction in Turnover
and
INCREASE IN COST OF WORKING
(Subject to limit of Savings in Profit)
•Indemnity Period
•Standing Charges.
•Annual Turnover.
•Standard Turnover.
•Gross Profit.
•Rate of Gross Profit.
• Gross Profit : Net trading profit plus Insured
Standing charges or in case of a loss, Insured
Standing charges less such a proportion of any
trading loss as the amount of insured standing
charges bears to all the standing charges of the
business
• Net Profit : The net trading profit (exclusive of all
capital receipts and accretions and all outlay
properly chargeable to capital) resulting from
business after due provision for all standing and
other charges including depreciation but before
deduction of any taxation chargeable on profits
• Insured Standing Charges : To be selected and a
list be submitted
• Indemnity Period : Beginning with the occurrence
of damage and ending not later than selected
months
• Annual Turnover/Output : The Turnover/ Output
during the twelve months immediately before the
date of damage
• Standard Turnover/Output :The Turnover/ output
during that period in the twelve months
immediately before the date of damage which
corresponds with the Indemnity Period
• Rate of Gross Profit : Earned on the Turnover
during the Financial Year immediately before the
date of the damage
Basis of Loss Settlement :
• In respect of Reduction in Turnover : The
sum produced by applying the Rate of
Gross Profit to the amount by which the
Turnover during the Indemnity Period
shall in consequence of the damage, fall
short of the Standard Turnover
• Increased Cost of Working
INDUSTRIAL ALL
RISK POLICY
Industrial All Risks Policy
Key Features
• Umbrella Cover
• Covers eventualities which cannot be
taken care of by any of the present
Operational Policies
• Insulation against all possible aspects of
Risk exposure which may have been
overlooked inadvertently
Industrial All Risks Policy
Eligibility

• All Industrial risks including

Petrochemical Risks
 Scope of Cover
In such an “All Risks” cover all
fortuitous mishaps are insured
barring a few named exclusions.
Policy form consists of –
Section I : Material Damage
Section II : Business Interruption
Section I : MATERIAL DAMAGE SECTION
The Policy will pay if Insured Property be
accidentally, physically lost, destroyed or
damaged other than by excluded causes.
In widest form IAR cover all perils/covers
under -
1. Standard Fire & Special Perils Policy
2. Machinery Insurance Policy
3. Boiler & Pressure Plant Insurance Policy
4. Electronic Equipment Insurance Policy
5. Burglary (other than larceny)
6. Transit Risk inside Insured’s premises
Exclusions :
1. Excluded causes :
• Faulty designed material or workmanship,
inherent vice, latent defect, gradual
deterioration or wear and tear.
• Interruption of water supply, gas electricity or
fuel system or failure of affluent disposal
system to and from the premises.
• Collapse or cracking of building
• Corrosion, rust, contamination or scratching
etc.
• Larceny, acts of fraud or dishonesty,
unexplained or inventory shortage.
• Coastal or River erosion
Exclusions (contd.) :
1. Excluded causes……..
• Any willful act or negligence of Insured or his
representatives
• Cessation of work, delay or loss of market or
any other consequential or indirect loss
• War and Kindred risk
• Dispossession resulting from nationalization or
requisition by authority or due to unlawful
occupation of such building by any person
• Destruction of property by order of any public
authority
Exclusions (contd.) :
2. Excluded property :
• Money, Cheques, Stamps, Securities, Works of
art, Documents, Manuscript, Computer system
records, Plans, Explosives
• Goods held in trust or Commission
(unless specifically mentioned as insured by
the Policy)
• Vehicles licensed for Road use, Locomotives,
Aircraft, Watercraft or like
• Property in transit other than within the
premises specified in Schedule.
Exclusions (contd.) :
2. Excluded property…….
• Property /structures in course of
construction / demolition / erection and
materials connected therewith.
• Land, Roads, Pavements, Railway lines, Dams,
Pipelines, Bridges, Docks, Underground
offshore property etc., unless specified.
• Livestock, Growing crops or trees
• Property damaged as a result of its undergoing
any process
• Property removed from the premises except
machinery for temporary repairs for 60 days
General Conditions
1. Misrepresentation, Non-disclosure of any
material fact – Policy voidable
2. The Policy ceases on expiry of 7 days from
date of fall or displacement of building or
part thereof
3. Insurance ceases unless sanction of company
obtained : (a) alteration of trade (b) building
unoccupied for more than 30 days © Insured
interest passes not by will or operation of
law
4. Cancellation Clause
5. Insured’s duty : (a) intimation of loss (b)
submission of all documents.
Limitation of 12 months
General Conditions...
6. Insurer’s right on happening of loss
7. Fraudulent claims
8. Option of company for mode of settlement of
claims
9. Average clause – not applicable if
underinsurance is less than 15%
10. Contribution clause
11. Rights of recovery against other parties
12. Arbitration clause
13. Reinstatement of Sum Insured Clause
 Special Conditions to Sec.I

Sum Insured :

Building, Plant &

Machinery - Reinstatement
value
and other fixed assets
Special Conditions to Sec.I
Basis of Loss Settlement :
If property lost or destroyed -
Rebuilding of building or Replacement of
property by similar property
If property damaged -
Repair of the damage or Restoration of
damaged portion
To a condition equal to but not better or
more extensive than its condition when
new.
Special Provisions of Reinstatement
Special Conditions to Sec.I
(contd.)

Debris Removal Expenses -

Of Insured Property limited to the

amount entered in the Schedule
Section II : BUSINESS INTERRUPTION
1. Loss of Gross Profit following loss and /
or Damage indemnifiable under Standard
Fire & Special Perils Policy and Burglary
2. Loss of Gross Profit following loss and /
or Damage indemnifiable under
Machinery Insurance, Boiler & Pressure
Plant Insurance or Electronic Equipment
(optional cover)
Section II : BUSINESS INTERRUPTION
Exclusions :
• Any restriction on reconstruction or operation
imposed by any public authority
• Lack of sufficient capital for timely restoration or
replacement of lost property
• Suspension, Lapse or Cancellation of a lease
licence or order
• Damage to Boiler, Economizers, Turbine or other
vessels resulting from their explosion / implosion
• Damage to Electronic equipment, computer
• Mechanical or Electrical breakdown or
derangement of machinery
• Deductibles as stated in the schedule
 Section II : BUSINESS INTERRUPTION

• Basis of Insurance :
Cover is limited to loss of Gross Profit due to :

(a) Reduction in Turnover and

(b) Increase in cost of working

Section II : BUSINESS INTERRUPTION
Basis of Settlement : The amount payable as indemnity
will be -
(a) In respect of Reduction in Turnover =
Short-fall in Turnover (as compared to Standard
Turnover) during the indemnity period multiplied by
the Rate of Gross Profit
(b) In respect of Increase in cost of working=
Reasonable additional expenditure incurred to
avoid reduction in turnover
Less : any saving in Insured standing charges
subject to adequacy of sum insured (Average
clause)
Definitions :
1. Gross Profit : (Turnover + Closing stock and
WIP) – (Opening stock + WIP + Uninsured
working expenses)
2. Uninsured Working Expenses : (a) Turnover
and purchase tax (b) Purchase (less discounts
received) & (c ) carriage, packing and freight
3. Turnover : Net sale proceeds paid or payable
4. Indemnity Period : Period (not exceeding the
Maximum Indemnity period selected) during
which results of the business are affected in
consequence of a payable loss
Definitions (contd.):
1. Rate of Gross Profit: Earned on turnover during
financial year immediately before date of loss

2. Annual Turnover Over : Turnover During the

12 months immediately before date of loss

3. Standard Turnover: Turnover during that period

in 12 months immediately before date of loss which
corresponds with the Indemnity period ( with necessary
adjustment for trend of business and for variation in
other circumstances affecting the business)
STANDARD DEDUCTIBLES : (w.e.f. 01.04.11)
Material Damage Claims
Sum Insured upto Rs100 cr per location for PD & BI: -

5% of claim amount subject to a minimum of 5 lakhs

Sum Insured above Rs.100 cr & up to 1500 cr. per location for PD & BI :-

5% of claim amount subject to a minimum of 10 lakhs

Sum Insured above Rs.1500 cr & up to 2500 cr. per location for PD & BI :-

5% of claim amount subject to a minimum of 25 lakhs

Mega Risks- Policies having SI above Rs.2500 cr . per location for PD & BI :-

5% of claim amount subject to a minimum of 50 lakhs

Deductibles Continued….
Business Interruption Claims
Sum Insured upto Rs100 cr per location for PD & BI:
• Other than Petro Chemical Risks - 7 days of Standard Gross Profit ..
• Petro chemical risks - 14 days of Standard Gross Profit .
• Business Interruption (MLOP) - 14 days of Standard Gross Profit
Sum Insured above Rs.100 cr & up to 1500 cr. per location for PD & BI :
• Other than Petro Chemical Risks - 7 days of Standard Gross Profit .
• Petro chemical risks - 14 days of Standard Gross Profit.
•   Business Interruption (MLOP) - 14 days of Standard Gross Profit.
• Sum Insured above Rs.1500 cr & up to 2500 cr. per location for PD & BI :Other than Petro Chemical Risks - 7 days of
Standard Gross Profit .
•   Petro chemical risks - 14 days of Standard Gross Profit.
•  Business Interruption (MLOP) - 14 days of Standard Gross Profit .
•  Mega Risks- Policies having SI above Rs.2500 cr . per location for PD & BI FLOP - 14 Days of Standard Gross Profit..
• MLOP – 21 Days of Standard Gross Profit.
 
ADDITIONAL CLAUSES :
1. Agreed Bank Clause
2. Architects’ , Surveyors’ and Consulting
Engineers’ fees clause
3. Designation of Property Clause
4. Escalation Clause – A.P.
5. Omission to insure Addition, Alteration or
Extension Clause – A.P.
6. Temporary Removal of stocks clause – A.P.
Industrial All Risks Policy
Favourable Features
1. Better Coverage
• Transit Risk Cover within compound
• Depreciation not considered
irrespective of whether the claim
involved total or partial damage
• 15% underinsurance allowed
• LOP due to Burglary & Other accidental
damage covered
Industrial All Risks Policy

Favourable Features (contd.)

2. Financial Benefits
• Free cover for Theft & Burglary as well
as Transit within compound
• MI Cover at a flat rate
• Discount on FLOP rates
Industrial All Risks Policy
Favourable Features (contd.)
3. Better Administrative Control

• The cover is in widest form

• Single Policy document
• Risks located in various places can be
covered under a single Policy